CARES Act and PPP Loans – Has the SBA Actually “Approved” Any PPP Loans? Or Are Its Deputies Doin’ All the Approvin’?

The Small Business Administration (SBA) has announced that as of April 15th it had “approved” about 1,300,000 Paycheck Protection Program (PPP) loans for about $289 billion (that’s just over $220,000 per loan, on average). The program kicked off on April 3rd: so that’s 1,300,000 approvals in 13 days, or 100,000 approvals every day, including weekends.

That’s a marked improvement over the SBA’s 2019 daily approval rate of about 160 loan approvals every day.

In 2019 the SBA approved a total of just under 59,000 loans totaling about $30 billion. In 2020, through March 20th, the SBA approved 24,745 loans for ~$12.5 billion. According to the SBA’s last congressional report (Fiscal 2021 Congressional Justification & Fiscal 2019 Performance Report), it noted that “The time to process a 7(a) non-delegated loan greater than $350,000 decreased from 15 days to 9 days (40 percent efficiency gain) [from FY 2017] and for loans under $350,000, from 6 to 2 days (67 percent efficiency gain).” So in fiscal 2019, the SBA approved about 46,100 7(a) loans totaling $23.2 billion. Each of those took between 2 and 9 days. And based on SBA’s data, about 20% of its 7(a) loans are under $350,000, and 80% are over $350,000.

So when faced with a volume of 59,000 loans in a year, it takes the SBA about two days to process the smaller loans, and nine days to approve the bigger loans.

So how did the SBA go from approving 160 7(a) loans per day in 2019 to approving 100,000 PPP loans per day in 2020? They deputized the lenders!

The CARES Act Has Deputized PPP Lenders – They Get to Approve the Loans They Make!

Section 1102 of the CARES Act creates the PPP and sets out the “what” that needs to be done (the “how” is reserved to the regulations). Section 1102(a) amends the existing section 7(a) of the Small Business Act (15 U.S.C. 636(a)) to add the PPP provisions in subsection 36 of section 7(a). The key is paragraph (F), titled “Delegated Authority”. It provides:

“(ii) DELEGATED AUTHORITY. (I) IN GENERAL.—For purposes of making covered loans for the purposes described in clause (i), a lender approved to make loans under this subsection shall be deemed to have been delegated authority by the Administrator to make and approve covered loans, subject to the provisions of this paragraph.”

That seems pretty clear: the SBA has deputized the lenders, and its the lenders that will make AND approve PPP loans, not the SBA. Is there anything different in the Interim Final Rule, or regulations? No. In fact, the Interim Final Rule refers to lenders making PPP loans, but is silent on lenders approving loans – even the law now gives lenders delegated authority to make and approve PPP loans. The phrase “make and approve” or “making and approving” doesn’t appear in the final rule.

So when the SBA announces that it has approved 1.3 million PPP loans in the first thirteen days of the PPP, what it really means is that its deputies – the roughly 5,000 banks, credit unions, and other lenders that have signed up for the PPP – have made 1.3 million PPP loans and, through the delegation powers in the statute, approved them. But one needs to question whether those 5,000 lenders have actually approved that many PPP loans, or whether they have simply submitted the electronic paperwork to the SBA’s E-Tran system and the SBA has returned 1.3 million PPP Loan Numbers back to those lenders, and are slowly working through the underwriting requirements and approving PPP loans methodically and carefully. It’s likely the latter.